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Tuesday, August 8, 2017

Flow battery maker Vionx took a step toward easier sales by releasing an insurance product for its technology.

The Massachusetts company teamed up with New Energy Risk to create a performance insurance policy that covers energy, power, round-trip efficiency and availability of the vanadium redox flow systems. This could open a new chapter in the bankability of insurgent battery technologies challenging lithium-ion's dominance.

Flow battery makers argue that their long-duration systems can cycle for years without degradation, making them ultimately cheaper to own than lithium-ion batteries, which fade over time. The lifetime cost of ownership argument, though, requires the customer to believe the company's claims about its new technology, even if it hasn't operated for more than a few years.

Having an outside entity vet the technology changes the dynamic of trust. Vionx asserts that this is the first insurance product for a utility-scale flow battery.

"It takes Vionx from 'We can compete on price, trust us,' to 'We can compete on price, but you don't have to trust us, because it's guaranteed by an insurance company,'" said Daniel Finn-Foley, an energy storage analyst at GTM Research.

Besides confidence in the technology, the end customer needs to feel secure that if something does go wrong, someone's on the hook to fix it.

Performance guarantees have become standard for long-term lithium-ion storage contracts with major utilities, Finn-Foley noted. Recent utility-scale projects in California included 20-year performance warranties, which means the developer will absorb the cost of replacing batteries and inverters as they give out.

That's a credible commitment from a company like AES, which has been building storage systems for a decade and has a market cap of $7.3 billion.

It's a lot harder to convince customers when a company has only been around for a few years and delivered a few small, pilot-scale projects. The insurance offering shifts the ultimate burden of accountability from Vionx to New Energy Risk, an affiliate of global insurance company XL Catlin.

The customer for the policy would be the EPC contractor that purchases Vionx batteries as part of an energy storage project. If any issues arise with a deployed system, Vionx still has the affirmative obligation to repair or replace according to warranty. The insurance covers the scenario in which there's a performance shortfall and Vionx can't fulfill the warranty.

“Vionx is a small company, but you have this financial support if anything does go wrong,” said Alan Dash, a member of the Vionx board.

Phrased differently, this means that NER has sufficient confidence in Vionx's flow systems to put its name and money behind them.

Under the arrangement, NER is offering an initial tranche of $50 million of coverage for Vionx’s current pipeline.

“We are prepared to provide additional capacity as Vionx grows and customer adoption increases in the marketplace,” said NER CEO Tom Dickson.

The insurer’s confidence stems from a nearly 20-month vetting process. The NER analysts took a deeply technical approach, crunching through raw performance data from field units and accelerated lifetime testing, said Chief Commercial Officer Jon Cozens.

The company specializes in seeking out promising emerging energy technologies from companies with limited balance sheets, and offering them creditworthy support, Cozens said.

“In the energy finance construct, a lot of times lenders require balance sheet support to finance the deal,” Cozens said. “Our business is fundamentally around enabling project finance."

This boost comes at a pivotal time for Vionx, which is looking to expand from its first few demos to broader commercial production.

The company has two systems operating today in Massachusetts, a 160 kilowatt, 4-hour system at an Army Reserve base at Fort Devens, and a 500-kilowatt, 6-hour system at Holy Name High School in Worcester. Vionx has built partnerships with other veteran companies to help move the product, including UTC, Siemens and 3M.

I was able to track down one other flow battery insurance product. Vizn Energy has developed an insurance product that it is actively sharing with specific customers in three-way meetings with insurance providers, VP of Marketing Mike Grunow confirmed in an email.

In fairness to Vionx, Vizn has not broadcast this information, and insurance has not been needed on its announced bookings so far. The trophy for first flow battery insurance sold, then, remains up for grabs.